A tactical speech laced with many contradictions

FORGET the Eurozone crisis. George Osborne is already fighting the 2015 general election. He used yesterday’s speech to talk over the heads of the Tory faithful to the electorate at large, often sounding more like a Prime Minister than a chancellor.

Ever the master tactician, he couldn’t resist taking several swipes at the Labour party and – as usual – his political antennae were spot on. “Once they cheered Tony Blair, now they boo him,” he said, well aware that those boos marked the end of a New Labour project that terrified the Tories for the best part of two decades.

Away from the political manoeuvring, an area where Osborne always excels, the speech was uninspiring: solemn in tone, light on substance and, worst of all, ideologically confused.

He described Labour’s latest policy of having different tax rates for “good” and “bad” companies as “frankly ridiculous”, which of course it is. For a brief moment, he dropped the “serious man for serious times” act and gleefully laid into an imaginary Labour chancellor “weighing up corporate Britain on some homemade scales of justice”.

Later, without a trace of irony, he boasted of “introducing the first ever permanent bank tax,” essentially a different rate of tax for a set of companies that he has decided are “bad”. Last year he hiked the bank levy again to ensure that banks (“predators” in Ed Miliband’s world) didn’t benefit from a the corporation tax cut he was giving to “producers”.

It’s hard to know whether Osborne genuinely thinks that banks are evil, in which case he is misguided, or whether he has decided he must fight on Labour’s terms to neutralise claims of a “tax cut for banks”, in which case he is being disingenuous. (It is the latter, I suspect, that is true).

“I’m a believer in tax cuts,” he proclaimed, before arguing that cutting taxes now would be irresponsible, because he would have to borrow more. But real believers in tax cuts believe they stimulate growth and generate extra revenue that would offset lower headline rates, a view that Osborne clearly doesn’t share.

Still, at least we know that he will not borrow any more, about that he was adamant. So it is rather odd that the main announcement was a madcap scheme that will see the government borrow billions of pounds to buy the commercial paper of small and medium-sized firms.

Because the government will use the money generated from gilt sales to buy assets, the deficit won’t technically increase, but the Treasury will still be left holding a stash of risky paper that could easily turn toxic if the economic outlook deteriorates. Tax cuts? Too risky. But a crazy borrow-to-lend scheme is just fine.

Throughout the speech, Osborne invoked the sunny uplands, the “prize” that will emerge at the end of the parliament. He claimed he was talking about an “economy freed from its debts” but really he has his eye on a much bigger prize: a Tory majority in 2015, and one which Cameron would probably bequeath to Osborne before the five years is out.